Cell phone users may get break on fees
WASHINGTON (AP) - May 21, 2008 Cell phone companies routinely charge customers $175 or more for
quitting their service early. Under a proposal to the Federal
Communications Commission, the wireless industry would give
consumers the opportunity to cancel service without any penalty for
up to 30 days after they sign a cell phone contract or until 10
days after they receive their first bill.
The proposal also would cap such fees and reduce them month by
month over the course of a contract based on how long customers
have left, according to people familiar with the offer speaking on
condition of anonymity because the FCC has not accepted it. The
plan would not abolish cancellation fees entirely and would not
refund such fees to anyone who paid them.
In exchange for the government's approval, the agreement would
let cell phone companies off the hook in state courts where they
are being sued for billions of dollars by angry customers. If
approved by the FCC, the proposal also would take away the
authority of states to regulate the charges, known as early
termination fees.
Lawyers representing customers who are suing over the fees are
strongly opposed.
"It's Christmas in May for the companies," said Pamela
Gilbert, an attorney with Cuneo Gilbert & LaDuca, a Washington
D.C.-based law firm working on one of the class action lawsuits
against the industry. She said if the FCC agreed to the proposal,
it would save cell phone companies hundreds of millions of dollars.
"The people left holding the bag are the millions of people who
paid illegal ETFs (termination fees) and now will never get their
money back," she said.
The nation's No. 2 wireless company, Verizon Wireless, offered
the proposal to the FCC for its review after high-level meetings
with senior FCC officials. It did so in consultation with other
leading wireless companies, whose executives indicated they would
not oppose its provisions, people familiar with the offer told the
AP.
The FCC declined to comment.
Consumers who have paid such fees describe them as exorbitant.
"It's ridiculous," said Ric Causey of Allen, Texas, who paid
$600 in termination fees to Sprint on contracts for three cell
phones after he canceled service because of what he said was poor
reception around Dallas.
"I understand the fine print, but I ended up paying $200 per
phone just to switch service," Causey said. He complained to
executives to no avail. "I never got any satisfaction," he said.
"I figured I'd deal with it later, but I never got reimbursed."
Causey, a freelance video producer, said he never imagined
refusing to pay the fees out of fear it would hurt his credit
rating.
Wireless companies said the cancellation fees are necessary to
recover the cost of cell phones, which they subsidize under
long-term service contracts, and to defray their costs for signing
up new customers. Consumer groups said the fees are unreasonable
and intended to discourage customers from switching among
providers.
The expensive fees have led to class-action lawsuits in several
states and legislative proposals on Capitol Hill and in state
legislatures around the country.
The industry's proposal would link cancellation fees to actual
costs incurred by a wireless company, and it would require
companies to prorate any fees over the course of the contract.
Verizon Wireless currently reduces such fees but never below $60.
Other major providers, including AT&T Inc., have announced plans to
prorate fees.
The proposal also would prohibit a wireless company from
imposing a termination fee on customers who change terms of their
contract or end one contract period and begin another.
Verizon Wireless is a joint venture between Verizon
Communications Inc. and the Vodafone Group PLC of Britain. Verizon
Wireless, with about 66 million subscribers, is the second-largest
wireless company behind AT&T Inc., with 70 million customers.
The wireless industry is increasingly worried about a series of
long-running, class-action lawsuits in state courts. One lawsuit
against Sprint Nextel is under way in California, and plaintiffs in
a New York case in arbitration are seeking $1 billion in refunds.
Federal law prohibits states from regulating wireless rates but
gives them authority over some terms and conditions under wireless
contracts. The industry's Washington lobbying group, CTIA,
previously asked the FCC to consider cancellation fees to be rates,
which would preclude state governments and courts from any
jurisdiction over them.
In September, Sens. Amy Klobuchar, D-Minn., and Jay Rockefeller,
D-W.Va., introduced the "Cell Phone Consumer Empowerment Act,"
which would require prorated fees and a 30-day window for customers
to exit a contract.